High street setback dampens fears of rate hike

The prospect of a rise in interest rates before the general election has almost vanished after official figures yesterday showed that the volume of retail sales fell sharply in December. The surprise setback on the high street sent shares soaring to a record last night.

The sales figures were the latest in a series of statistics providing Kenneth Clarke with the ammunition to resist Bank of England advice that the cost of borrowing should go up.

"The Chancellor is home and dry provided we do not see the pound weaken," said Leo Doyle, UK economist at Kleinwort Benson.

The pound, whose strength gave Mr Clarke the rationale for not raising base rates earlier this month, climbed further yesterday. Its index against a range of currencies gained 0.3 to 97.2.

Sterling also gained more than a pfennig to reach DM2.7142, within a few pfennigs of the rate from which it tumbled out of the exchange rate mechanism in 1992.

The FTSE 100 index closed nearly 24 points higher at 4,219.1, having retreated slightly from earlier highs after Wall Street opened.

Although City economists still disagree about whether interest rates should go up, there was near-unanimity yesterday that any move would be postponed until after the election. Only an extremely buoyant figure for GDP growth in the final quarter of 1996, due to be published on Monday, could tip the balance the other way.

December's retail sales performance helped the case against tougher monetary policy. The volume of sales fell 0.8 per cent during the month, although the estimated increase in November was revised to 0.9 per cent from 0.7 per cent.

Of last month's decline, 0.6 per cent was due to a sharp fall in sales of clothing and footwear following sharp increases in the previous two months. Sales in this sector remained the fastest-growing in the year to December, up 7.5 per cent, and discounts in the January sales could lead to a rebound.

Sales in "other" stores - mainly specialist shops such as chemists and jewellers - also fell and there was a small decline in non-store retail sales - mainly mail order - whose growth has been slowing for some months. There were increases in all other categories. These were strongest in department stores and supermarkets. The volume of sales at food stores increased by 0.4 per cent in December and 2.6 per cent year-on-year.

Tim Congdon, one of the Treasury's panel of "wise persons", said that one month's worth of weak data did not mean the case for tighter monetary policy had evaporated. "I would not put much weight on the figures around Christmas. The inflationary dangers remain," he said.

But others were more doubtful. "There is now enough of a question about the pace of growth for it not to matter waiting a month or two," said Michael Saunders, an economist at Salomon Brothers.

The next monthly meeting between the Chancellor and the Governor of the Bank of England will take place on 5 February.

Suggested Topics
Life and Style
A teenager boy wakes up.
life
Arts and Entertainment
Critics say Kipling showed loathing for India's primitive villagers in The Jungle Book
filmChristopher Walken, Bill Murray, Scarlett Johanssen Idris Elba, Andy Serkis, Benedict Cumberbatch, Cate Blanchett and Christian Bale
Life and Style
food + drink
Life and Style
Playing to win: for Tanith Carey, pictured with Lily, right, and Clio, even simple games had to have an educational purpose
lifeTanith Carey explains what made her take her foot off the gas
PROMOTED VIDEO
Life and Style
tech
Arts and Entertainment
A still from Duncan Campbell's hour-long film 'It for Others'
Turner Prize 2014
News
i100
Arts and Entertainment
Tony Hadley in a scene from ‘Soul Boys Of The Western World’
musicSpandau Ballet are back together - on stage and screen
Arts and Entertainment
From left to right: Ed Stoppard as Brian Epstein, Sheridan Smith as Cilla Black and Elliott Cowan as George Martin in 'Cilla'
tvCilla review: A poignant ending to mini-series
News
i100
Life and Style
Bearing up: Sebastian Flyte with his teddy Aloysius in Brideshead Revisited
lifePhilippa Perry explains why a third of students take a bear to uni
Arts and Entertainment
Sir Alan Sugar appearing in a shot from Apprentice which was used in a Cassette Boy mashup
artsA judge will rule if pieces are funny enough to be classed as parodies
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

SQL Developer (Stored Procedures) - Hertfordshire/Middlesex

£300 - £330 per day: Ashdown Group: SQL Developer (Stored Procedures) Watford...

Day In a Page

Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

Isis an hour away from Baghdad -

and with no sign of Iraq army being able to make a successful counter-attack
Turner Prize 2014 is frustratingly timid

Turner Prize 2014 is frustratingly timid

The exhibition nods to rich and potentially brilliant ideas, but steps back
Last chance to see: Half the world’s animals have disappeared over the last 40 years

Last chance to see...

The Earth’s animal wildlife population has halved in 40 years
So here's why teenagers are always grumpy - and it's not what you think

Truth behind teens' grumpiness

Early school hours mess with their biological clocks
Why can no one stop hackers putting celebrities' private photos online?

Hacked photos: the third wave

Why can no one stop hackers putting celebrities' private photos online?
Royal Ballet star dubbed 'Charlize Theron in pointe shoes' takes on Manon

Homegrown ballerina is on the rise

Royal Ballet star Melissa Hamilton is about to tackle the role of Manon
Education, eduction, education? Our growing fascination with what really goes on in school

Education, education, education

TV documentaries filmed in classrooms are now a genre in their own right
It’s reasonable to negotiate with the likes of Isis, so why don’t we do it and save lives?

It’s perfectly reasonable to negotiate with villains like Isis

So why don’t we do it and save some lives?
This man just ran a marathon in under 2 hours 3 minutes. Is a 2-hour race in sight?

Is a sub-2-hour race now within sight?

Dennis Kimetto breaks marathon record
We shall not be moved, say Stratford's single parents fighting eviction

Inside the E15 'occupation'

We shall not be moved, say Stratford single parents
Air strikes alone will fail to stop Isis

Air strikes alone will fail to stop Isis

Talks between all touched by the crisis in Syria and Iraq can achieve as much as the Tornadoes, says Patrick Cockburn
Nadhim Zahawi: From a refugee on welfare to the heart of No 10

Nadhim Zahawi: From a refugee on welfare to the heart of No 10

The Tory MP speaks for the first time about the devastating effect of his father's bankruptcy
Witches: A history of misogyny

Witches: A history of misogyny

The sexist abuse that haunts modern life is nothing new: women have been 'trolled' in art for 500 years
Shona Rhimes interview: Meet the most powerful woman in US television

Meet the most powerful woman in US television

Writer and producer of shows like Grey's Anatomy, Shonda Rhimes now has her own evening of primetime TV – but she’s taking it in her stride
'Before They Pass Away': Endangered communities photographed 'like Kate Moss'

Endangered communities photographed 'like Kate Moss'

Jimmy Nelson travelled the world to photograph 35 threatened tribes in an unashamedly glamorous style